Loews to Buy Out Investors in Boardwalk Pipeline MLP

The limited partners of Boardwalk Pipeline Partners (ticker: BWP) will surrender their holdings in the master limited partnership next week for $12.06 a unit.

The units were trading at $12.05 on Friday.

It’s not necessarily the choice of investors, especially those who have been long-term holders. Loews (L), which controls Boardwalk, is exercising its right to call the outstanding common units of the master limited partnership, or MLP. It will pay about $1.5 billion for the units.

The episode illustrates how MLPs can offer less protection than what shareholders in traditional public companies expect. When Loews disclosed on April 30 that it was considering such a move, several investors later expressed concern that the final purchase price would be unfairly low. The move also prompted an investor lawsuit. Barron’s wrote last month about the discontent among minority investors. ( “Investor Pressure in the Pipeline,” June 11.)

The closing unit price was $11.04 on April 27, the last full trading session before the possibility of buying in the units was announced. The price fell to an intraday low of $9.10 on May 8, but it did improve after that.

On June 25, the lawsuit on behalf of the limited partners was settled pending a judge’s approval.

Loews announced on June 29 that it would “exercise its right to purchase all of the issued and outstanding common units representing limited partner interests” that weren’t already owned by the general partners or affiliates.

The press release said that the decision was in accordance with the MLP’s limited partnership agreement.

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A likely trigger for the move was a notice issued on March 15 by the Federal Energy Regulatory Commission that reversed “its longstanding policy allowing MLPs to collect income-tax allowances in cost of service rates,” according to a Morgan Stanley research note.

The $12.06 purchase price was determined by the average closing price for a 180-day period ending June 29.

The right to exercise this option has been disclosed in company documents, including the limited partnership agreement.

Nonetheless, several long-term investors rued the timing and were concerned that they would be bought out at an unfavorable price.

The units, which began trading publicly in 2005, climbed above $30 during various years, most recently in 2013 before energy prices collapsed.

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